Covid-19 Outbreak - Risk Management practices to create a robust Supply Chain

More than a million people have already been affected by the deadly Covid-19, making it one of the worst pandemics of the century. It has shifted the priorities for governments, individuals and conglomerates globally. Amidst the disruption in the supply chain due to limited access to manpower, factory closures, manufacturing slowdowns, and limited or no access to logistics; businesses are facing a hard time in crisis management. Every company is currently in a crisis management mode, even those with advanced risk management programmes - not only do they have to ensure the safety of their workers but also protect their operational viability.

All organisations should take a stride to monitor their supply chain and ensure the longevity of their business.

Risk Management practices to follow:

1. Diversifying Vendor Base -

Many organisations rely on a fixed network of vendors for their supply needs, in case their vendors fail to deliver, they are left without any backup plan. Companies should increasingly look for alternate sources of supply, especially in severely affected regions. Manufacturers should create a list of Tier-2 vendors along with their Tier-1 Vendor list will help companies mitigate risk. Purchase teams should be in constant communication with all of their suppliers, across all tiers, to form a series of joint agreements to monitor inventory levels as a precautionary system for interruption and establish commodity-based risk management plans for their prominent suppliers. With a network base of 5000 vendors, Procol can assist in mitigating one of the biggest challenges in creating a robust supply chain.

2. Adopting a transparent procurement strategy.

Not having a transparent system to work with, organisations are often faced with monumental challenges on the management front. The management has little or no information about the dealings of the purchase teams, which, especially in times of crisis can lead to obfuscation, human-induced errors and an unproductive opaque system.

By building and reinforcing a single command centre, a supply chain which is digital strengthens capabilities in anticipating risk, effectuating visibility & traceability, and managing issues that arise from operational execution. As the virus engulfs countries globally, digitising interactions between the vendors and the buyers on an end-to-end platform is the need of the hour.

3. Optimizing Production:

From the current trend, it seems like the current crisis is here to stay and it might be months if not more, for the true impact of supply chain disruption to manifest. After employee safety; inventory management is one of the foremost things for optimising production. Supply and demand should be frequently assessed as the virus may completely change the buying habits of the consumers. A more prominent problem can be panic buying among the customers. If the lockdown is prolonged, organisations should assess the impact of their current inventory stock. Having a centralized system for all the supply chain and procurement needs will ensure that the procurement leaders have enough time on their hands to deal with such unprecedented risks.

4. Creating a resilient financial structure:

As businesses have come to a halt, supply chains have become constrained, dwindling sales and reduced profit margins will force businesses to look for better ways to manage their finances. One of the major areas in which procurement and supply chain organisations can work is reducing the price at which they buy the commodities. Digital products which allow live bidding with an extensive vendor base would ensure competitive bidding, and can contribute substantially in cash savings.

5. Vendor Financing:

Due to the ongoing lockdown, vendors may refrain from supplying the goods without an upfront payment, creating a persistent risk factor for the organisations. Vendor Financing services can aid the companies amidst this crisis. It allows companies to obtain trade credit from financial lenders, without having to use their retained earnings thus enabling them to maintain their working capital cycle, preserve the much needed cash and ensure unhindered supplies from vendors. Such practices can ensure that organisations can pay off the debt at a later stage, when they are more financially secure and better in control of their business.

The Covid-19 crisis will surely have lasting effects in the supply chain and procurement industry, and for the world economy as a whole; and although these outbreaks are impossible to predict, a proactive approach to risk management, with the complete set of tools can absorb the shock. Utilizing data and forecasting tools correctly would be a first crucial step for companies to make strategic decisions and navigate the turbulent market environment.